Economic and Financial Determinants of Oil and Gas Exploration Activity
Peter C. Reiss
This paper studies the investment activities of 44 independent oil and gas
firms from 1978 to 1986. It develops a dynamic model of oil and gas
exploration and development. The model predicts less of a decline in
exploration activity than actually occurred in 1985-86. I consider the extent
to which financial factors may have affected firms' investment plans during the
1985-86 deflation. There is some evidence that credit contracts in this
industry did place important limitations on firms's abilities to respond to the
energy price deflation. These constraints were imposed because lenders could
not separately distinguish between unfavorable industry developments and poor
individual firm performance.
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